Tax Implications On Fixed Deposits - Interest, TDS, And When To Submit Form 15G/15H

The first and foremost thing to learn is that fixed deposits are taxable. The basic meaning of TDS on fixed deposit is the tax implied on the interest received from your various fixed deposits in a certain bank. Usually, the banks deduct the calculated amount before depositing the interest sum into the customer’s account. The bank deposits the tax amount to the Income Tax Department. This can also be done individually by the customer while filing the ITR. The tax implications might seem a bit complicated. Hence, let us guide you through the important information via this article.

What Is FD And Its Different Types

The basic answer to what is FD is when a lump sum of money is deposited in a bank to be matured over a pre-decided period with a pre-determined interest rate

There are three major types of FDs,

• Standard

This has higher interest rates than a savings account and is normally taxable if the income amount is within the tax slab. The bank then levies the TDS charges on the interest received. The charge is 10% over 40,000 if your PAN details are provided to the bank or the TDS rate is 20%.

• Tax-Saving

The only type of FD that qualifies for tax deduction under Section 80C of the Income Tax Act is a Tax-saving FD with a maximum deduction of 1.5 lakh p.a. and a lock-in period of five years. However, the FD amount is taxable and will have the same TDS rates.

• Senior Citizen

This is specifically for customers over the age of 60 and has higher interest rates. The TDS percentage is the same but for an amount over 50,000. The rest of the rules remain the same as the Standard FD.

What Does The Form 15G/15H Claim?

This form saves your tax on FD, but it only applies to a limited section of people. If your income is below 2.5 lakh p.a., the amount is not taxable according to the government rules. As this is not included in the taxable slab, no interest can be levied on fixed deposits of such customers. If you are included in this section, submitting the form to the banks at the beginning of every financial year is advisable.

You can also save your tax on FD by splitting the deposit amount. You can invest in the names of your family members. Divide the sum of the money you want to deposit under the name of your spouse, parents, children, etc. so that for each account, the amount remains below the taxable limit; hence, no TDS can be levied in such a case. However, for more detailed information, consult your CA.

Moreover, by depositing closer to the end of a financial year, the TDS will be divided into two years, and then the interest calculation will fall under the minimum limit; hence, no TDS will be deducted.

Final Thoughts

The information given above is a general set of rules and guidelines of FD meaning and its tax implications. However, it is better to contact the bank directly for more specific details like tenure, deposit amount, etc.